Private equity (PE), and the transformational impact it brings to companies and the overall economy in the long term has been a critical subject of research across the globe. In India as well the industry analysis indicates that PE firms have played a key role in driving corporate earnings, economic growth and even social inclusion.
Since the turn of this century in particular, PE firms have taken a keen interest in the India growth story. India has received a total foreign direct investment of US$ 209.8 billion between April 2000 and December 2013, of which the share of PE investments was around US$ 78.3 billion or 37 per cent. They have funded more than 4,000 businesses. Over the past five years, Indian companies have raised twice the amount that they have raised through IPOs via the PE route. Apart from capital, they have brought in their global expertise and experience that has helped companies like Bharti Airtel, Hero MotoCorp and HCL Technologies to scale up and be globally competitive. A comparative study indicates that employment in PE backed companies has grown by 12 per cent, around four times as compared to non-PE backed firms. Research also indicates that they have contributed significantly to tax revenues and also towards increasing exports from India.
The year 2014 has seen a decisive surge in PE interest in the country. The year witnessed investments of around US$ 12 billion across 604 deals (volume highest over the last decade), representing an increase by 34 per cent year-on-year in terms of volumes and 23 per cent year-on-year in terms of value. Combining PE and M&A figures, the year saw 1,177 deals that were valued at over US$ 50 billion, the highest figure since 2011.The largest share of PE investments was garnered by the IT & ITES sector with investments of US$ 5.07 billion followed by banking & financial services (BFSI) with US$ 1.36 billion and infrastructure management with US$ 887 million. The year also saw more than 100 exits, which is a record, for aggregate valuations exceeding US$ 5 billion. This is expected to further boost interest of PE firms in the Indian economy, and PE exits are also expected to be critical drivers for the primary market in the coming years. Going forward, PE firms believe that IT/ITES, retail & consumer sectors will continue to see upward trend, while BFSI, real estate, infrastructure and pharmaceuticals could be some of the sectors to look out for in 2015. New growth drivers could also get interesting from the PE point of view, including manufacturing, digital and internet of things (IoT).
With a stable government at the centre, projections of higher economic growth and a steady maturing of the PE market in India over the years, PE investments in the country are expected to accelerate further in the coming years. Industry estimates project that India has the potential for attracting around US$ 40 billion in PE investment in the year 2025.